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ASIC v Letten (No 15) – winding up orders made in the Federal Court

As I posted 2 weeks ago, Friday 4 November 2011 was the first return date of ASIC’s application to wind up 32 of the companies associated with Mark Letten, the subject of many court hearings before her Honour Justice Gordon, since February 2010. You can read my other posts about some of the previous litigation herehere and here.

At the first return date, her Honour made orders pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) – the just and equitable ground – to wind up the 32 companies. Mr Damian Templeton and Mr Phillip Hennessy of KPMG were appointed liquidators of all 32 of the companies – they had been the receivers and managers of certain property of those (and other) companies, and the receivers and managers of identified property of the relevant (unregistered) managed investment schemes.

One of the companies, LGH Finance Pty Ltd, was in a different position. The other companies had operated managed investment schemes that were unregistered, in contravention of s 601ED(5) of the Act, which gives rise to an offence under s 1311 of the Act. LGH Finance was in a different position. Its role was limited to holding units in the Reef House Unit Trust on behalf of investors in the Reef House Resort. Its solvency depended upon whether investors in the resort had any direct claims against it and, if so, the outcome of the realisation of assets of the resort after payment of the outstanding bank debt. In the event, the proceeds of sale of the resort were insufficient to meet the outstanding bank debt, let alone any claims by investors.

Her Honour’s judgment contains a characteristically useful distillation of principles, in this case those relevant to an application under s 461(1)(k) by a public authority – see [13-14] of the judgment.

ASIC’s application was unopposed. Her Honour ordered that the companies be wound up pursuant to s 461(1)(k) for 7 reasons –

1. The companies operated an unregistered managed investment scheme or schemes that was or were required to be registered under the Act, in contravention of s 601ED(1).

2. The companies owe investors large sums of money in principal and capital gains, the investors have good contractual claims to these moneys and the companies are either no longer trading or there is little prospect of them continuing to do so.

3. The companies formed part of a web of companies which raised large sums of money from investors for the purpose of investing in commercial and/or retail property joint venture projects, which should have been registered.

4. The lack of disclosure to investors in the raising of funds lead to many being misled as to the true nature of the manner in which their funds were to be used, and the risks inherent in the investments.

5. The companies misapplied investors’ funds without their knowledge or consent.

6. The properties acquired by the companies have been sold.

7. There is no good reason to maintain registration of these companies.